Russia introduced new trade bans on large agricultural and food producers this month, following a number of restrictions that came into effect in January. The companies affected by the ban have political affiliations across the board, including those associated with pro-presidential Party of Regions members.
Russia’s frequent trade wars against Ukrainian goods have forced companies to look for new markets, similar to the experiences of Moldova and Georgia, nations whose political leaders have also drawn the Kremlin’s wrath.
In recent years, agriculture and food production has been the primary target of these restrictions, from cheese to poultry. Agriculture is one of few growing sectors of the Ukrainian economy. Ukraine in 2012 exported $17.6 billion in goods to Russia, Ukraine’s single largest trading partner, according to the State Statistics Service. However, agricultural products rank only third in Ukraine’s export portfolio to Russia, worth an estimated $2 billion per year. Russians consume Ukrainian confections, dairy products (mainly cheeses) and meat, most of all, the same sectors targeted most often with sanctions.
The most recent restriction was introduced just last week, when the Russian inspection agency announced on Feb. 7 that the poultry products of Ukraine’s largest producer, Mironivsky Khliboproduct (MHP), which sells 35 percent of its output to Russia, contained dangerous bacteria and recommended their imports be suspended.
The Russian ban was preceded by Ukraine’s State Veterinary and Phytosanitary Service suspending export certificates of MHP, and informed its Russian partners about it. A similar sequence of events took place last May.
On the same day, Luhansk Regional Trade and Commerce Chamber said that as of Feb. 6 Russia also limited import of a whole range of Ukrainian goods, including from confectionaries AVK and Konti, both of which are co-owned by Party of Regions members. “The explanation of the Federal Customs Service of the Russian Federation is complaints about the quality of the imported goods,” the Chamber said in a statement.
Coincidentally, on the same day Ukraine’s top envoy for cooperation with Russia, CIS and Eurasian Economic Union (the successor of Russia-led Customs Union) Valeriy Muntian said that all problems on the Russian-Ukrainian had been solved.
Foyil Securities analyst Ivan Panin argues that many of the trade restrictions can be considered protectionist measures to give an edge to local companies. Russia has many underperforming dairies, for example, and Ukrainian cheese is not only better quality, according to Panin, but cheaper. The same can be said for poultry and confections.
Russia joined the World Trade Organization 2012, which obliges the country to lower tariffs. However, Global Trade Alert reports that in 2013 Russia enacted 331 protectionist measures – one-fifth of all worldwide.
The latest round of trade sanctions coincided with the resignation of pro-Russian Prime Minister Mykola Azarov on Jan. 28. As of that date, Russia’s customs service started treating Ukrainian goods as high risk, and demand additional checks and documents that delay shipments, several Ukrainian trade associations said.
Yaroslav Udovenko, a senior analyst of the Kyiv-based financial services company Foyil Securities, says that Russian pressure on businesses that have ties to the government is an indication that the Russians are trying to deliver a message to Ukraine’s authorities to toe the line or face the consequences.
Roshen said it could lose $125 million worth of sales to Russia as a result of last year’s export ban, which continues this year. MHP predicts losses of up to $100 million if their ban is not lifted.
Udovenko says that one silver lining of these trade wars is a search for new markets by Ukrainian producers, as well as other market strategies, such as avoiding showing the “Made in Ukraine” label to Russian inspectors.
Several companies have been constructing and opening production sites outside of Ukraine for re-export to Russia. Milkiland acquired the Ostrowia cheese plant in Poland in 2012 and MHP has acquired land in Russia for what Udovenko believes is the first step in a greenfield project.
Roshen may be obliged to expand the candy factory it owns in Lipetsk, Russia, Udovenko said. It owns a total of six production facilities, including four in Ukraine.
Producers of meat and confections have made some progress in expanding the geography of its sales. In 2013, MHP opened over 20 new export markets in Asia, Middle East and Africa, as well as Europe, where its sales started in October, according to the company’s own statement.
Middle East, North Africa and Asia have also grown in importance for egg producer Avangard. Its sister company, UkrLandFarming, is also working to sell corn in China.
Kyiv Post associate business journalist Evan Ostryzniuk can be reached at [email protected].
